2009 State of the City Speech

Good morning and thank you for joining me as I give the annual State of the City Address. I would like
to acknowledge my fellow Councilmembers:

Vice Mayor Olsen

Councilmember Hawn

Councilmember Keating

Councilmember Lopez

Councilmember Marsh

Councilmember O’Bryant

In addition to your elected City Council, we are joined by the City’s Charter Officers, Department heads
and other city staff. Thank you all for being here.

I also want to thank my wife Renee, without whom I would not have the strength to do what I do. She and my
family sacrifice much in order for me to hold elected office and I appreciate their love and support.

I am especially honored that my strongest confidante and the love of my life, my wife Renee is here with me
this morning.

Early in this fiscal year, we began to notice a trend in our financial situation. Revenues to the City
through property taxes, sales taxes and various fees began falling and falling sharply. As a result, we
immediately began the process of reviewing our budget and making the cuts necessary to stay above water.

The situation has not, and is not improving. I pledge to each and every citizen of Modesto that the City
Council and I will not provide false promises and that we will do everything in our power to continue providing
basic services and respecting your tax dollars. The City of Modesto faces some very real challenges in the
months ahead; and I am certain that actions the City Council must take in order to “right-size” Modesto will
be felt by the average citizen.

Our doors will not close. We have operated with the revenues we are currently receiving in years past. To
put things into perspective, the amount of revenue coming into the City is roughly equivalent to that of Fiscal
Year 2002-2003. As such, the City Manager and I are working together closely to realign the structure of our
organization so that it more closely reflects the services we will be able to provide. Staffing levels are
likely to reduce in order to meet the budget shortfall.

Every department within the City will be subject to reductions in personnel and programs, including public
safety. We will work closely with both the Police and Fire departments to minimize emergency service
disruptions to the community. Non-emergency calls will need to be prioritized and it is here that residents
and business owners can expect to see a reduced level of service.

Each program and service provided by the City of Modesto is, and will be under review. City staff will make
recommendations and ultimately the Council will make the difficult decisions as to which programs will be
eliminated or scaled back, and at what level we can afford to fund basic services such as police and fire,
road maintenance, and other mandated services.

City staff will enact the necessary measures to immediately trim the $2 million in costs we need to reduce
to end this fiscal year with a seven percent reserve. Based on the numerous cuts already in place, most of the
additional cuts will be accomplished through the elimination of various positions and programs and through the
reduction of salaries by way of furloughs and other means.

For the next fiscal year, which begins in July, I anticipate that we will face the daunting task of reducing
what is currently estimated to be $10 million more in budget cuts. So that we are better prepared for July 1,
decisions are already being made to address employee-related cuts; these decisions will be put into action over
the next 110 days.

As I said in my last State of the City, we cannot be all things to all people. There are sure to be
reductions in recreation programs, less City support for public and charitable events and a reduction in the
levels of service in nearly every function at City Hall.

Today, I ask you to recognize that the City’s finances are significantly strained. Acknowledge that you
will encounter slower responses to service inquiries and routine City functions. If you want to help out and
have a strong passion for any of our programs or services, volunteer your services, skills and expertise to
City recreation activities, schools, local charities or public events such as our Independence Day Parade.
We will get through these trying economic times, but we will do so faster and better if we all pitch in to
do our part.

City staff and Council have been closely monitoring the change in our local economy for the past two
years. We saw the downward trend begin and immediately began taking action in order to be prudent in our
spending. By cutting projects that could be delayed and placing a hold on hiring for certain unfilled positions,
we have been able to save millions of dollars and all the while minimizing the impact to our citizens. Had we
not been so diligent in the way we monitored and altered our budget, we would be in a far worse condition than
we find ourselves today.

In addition to trying financial times, the City has evaluated a variety of programs on an on-going basis and
sought to reduce spending by eliminating programs and privatizing certain services. Examples of our efforts
include the privatization of parks maintenance services, as well as a similar action to privatize City custodial
services. Both of these actions have resulted in thousands of dollars in savings.

I oppose redundant government services and facilities, which is the reason I will continue to encourage the
City Council to consider options that involve partnerships with other agencies. One such proposed partnership is
the consolidation of fire protection services and a fully-integrated county-wide emergency dispatch center.
Where possible, we ought to work toward efficient and more streamlined services. An example would be the
combination of City and County building permit and inspection services. It is believed that such a partnership
would both cut costs and also provide a more efficient service to customers.

As part of our commitment to be financially responsible, the City Council and I have insisted on maintaining
a reserve fund. While we lowered the threshold for reserves this past budget year, we have still maintained
millions of dollars in reserve for unforeseen issues and local emergencies. No longer are our reserves a “rainy
day” fund; they are necessary for our financial survival.

I intentionally placed the state of the City’s finances at the beginning of this address. It is vitally
important that everyone realize our situation; however, it is equally important that our citizens know that we
will not close our doors. While the next 18 months are sure to be difficult, the City will continue providing
services that are essential to our community.

These trying economic times will pass as they have in the past; we will pull through as we always have and
will come out even stronger than before. Modesto must be prepared for the recovery of the economy and we have
already set certain projects into motion for just this purpose. For a project to be considered, it must put
people to work in Modesto and invest money into the Modesto economy.

The newly adopted Wastewater Treatment Capacity Banking and Transfer Program has been created for use by
industries in Modesto, such as canneries, food producers, wineries, etc. The new program provides an incentive
for industries to donate, trade or sell their excess wastewater capacity to another industry, new or existing;
which in turn helps create more jobs by stimulating economic development and growth.

We are currently in the initial stages of upgrading our wastewater treatment facilities to include a third
treatment process at its Jennings Road wastewater treatment site. Although the upgrades are driven by
requirements, the third treatment process produces a useable recycled water that can be used for agricultural
and economic development purposes.

The City continues to evaluate the use of the Kansas-Woodland Business Park. This 45-acre parcel is
immediately adjacent to Highway 99 and has the potential to bring eight hundred new jobs to Modesto. We have
identified uses of land to include office headquarters, “flex” business park space and retail and service uses.

The City has also initiated a Capital Improvement Planning Process. In this process, City staff and members
of the community review and identify the roads, traffic signals, and facilities the City needs in order to
support growth and economic development. Task forces are meeting to prioritize and organize projects that will
then be reviewed by the City Council. Once approved, the Capital Improvement Plan will become part of our General
Plan Update and fee structure for the City of Modesto. City staff is currently in the process of reviewing our
comprehensive development fee schedule by comparing to related cities. Once the analysis is complete, the City
Council will make the decisions on how our fees are structured in the future. Proper planning and addressing our
needs in a logical manner can reduce burdens to taxpayers and fairly allocate the cost of new facilities.

The City’s Economic Development Committee is reviewing and directing the 2009 Urban Growth Review Update in
which an inventory is taken of all vacant residential, commercial and industrial land; once the inventory is
complete, the City Council will determine the timing and direction of growth to the areas that can be most
feasibly provided with urban infrastructure.

City staff has always done a great job of applying for and receiving state and federal grant funding for
various projects. I assure you that the City will pursue grant funding even more aggressively through the state
and federal governments and in some cases, private foundations. As such, we are carefully reviewing programs and
projects and are identifying those ready for immediate grant funding. It will be crucial that we have what are
called “shovel ready” projects waiting in the wings for any and all grant funding opportunities. These grants will
not only put Modestans to work, they will also enhance our local economy. Please visit City’s website at
www.modestogov.com to view our many grant-eligible projects.

Through the Accountability at City Hall measure, voters initiated the process of hiring an independent
auditor to help strengthen the services the City provides. Late last year, we hired Modesto’s first independent
City Auditor, Frank DeMattos. As City Auditor, Frank reviews City programs, fees, and practices and reports what
works well and what needs to be fixed to the City Council and the public.

In the same election as the Accountability as City Hall measure, another measure, Measure N, established
City Council elections by district. A citizens’ commission was formed to draw boundaries and determine a method
of fairly implementing district elections for six of the Council seats. The position of Mayor is still elected by
the City as a whole. The result of the Commission’s hard work and dedication will be seen in November as Council
members will be elected by district for the first time in Modesto history; placing the accountability of elected
officials closer to the people most affected.

In 2008, $8.3 million was used for roads maintenance, the construction of a water storage facility and the
pavement of new roads in Modesto. Projects included:

Expanding Floyd Avenue to four lanes from Roselle Avenue to Fine Avenue.

Paving large portions of Ninth Street.

Repaving Sylvan Avenue from McHenry Avenue to Coffee Road.

And replacing 14,500 feet of pipeline on Orangeburg Avenue from Carver Road to Coffee Road.

These projects signify the commitment of this Council to use developer fees and other funds to improve roads
and facilities in Modesto.

As you all are aware, Modesto was part of the core of the housing crisis. As such, we were more determined
than ever to get federal financial assistance to help our community cope with the staggering foreclosure rates.
We applied for, and are fairly certain we will receive, $8 million to help stabilize Modesto’s neighborhoods.
Modesto’s proposal for the Housing and Economic Recovery Act of 2008 Neighborhood Stabilization Program funding
is unique and has gained much attention. The proposed program will divide the funds into four categories, two
that are traditional methods: affordable rental housing and down payment assistance. And two that are not so
traditional. The two unique methods require what is called a “Request for Qualification” from potential
developers that wish to purchase foreclosed homes. One request will be specific to target areas in Modesto,
specifically foreclosed homes in the Airport and Weed and Seed neighborhoods of Modesto. The other request
will be more general, opening up the opportunity to any neighborhood in Modesto with a high rate of foreclosure.
The potential benefits from this $8 million are great and we look forward to stimulating the Modesto economy by
creating jobs and having foreclosed houses become homes to families once again.

As if that wasn’t enough good news, I am proud and honored that Modesto has been chosen for the second year
in a row to be a host city for the Amgen Tour of California. The largest cycling event in the United States will
be rolling through our community and downtown Modesto next Tuesday, the 17th. Last February we hosted the start
of Stage 3 of the Amgen Tour of California, the race began in Modesto and headed west to San Jose; this year the
route is reversed! The riders will begin their day in San Jose around noon and will race into Modesto between 3
and 4 in the afternoon. Last year we rolled out the red carpet for this world-class tour of cyclists and our
efforts were hailed as the best stage start ever in the three year history of the race. This year will be no
different as we fully intend to top last year’s effort; proving that Modesto is top venue for this sport.

Our ability to host this race would not be possible without the full support of our community. From the
sponsors to the volunteers and especially the spectators, you all make this event an amazing experience for all.
Thank you for helping us host the Amgen Tour of California and showcase the many wonderful things Modesto has to
offer. Mark your calendars for next Tuesday, February 17 – I’ll see you downtown at this exciting FREE event.

Thank you for your time this morning and for engaging in your local government. Throughout the years, our
community has faced challenges, and each time we’ve pulled together and worked our way through them, learning
that through adversity we grow. We will do so again. We will do so together. And when we do, we will emerge a
stronger and closer community.